Market weakness is scarier than exchange rate fluctuations

At the beginning of the new year, the international exchange rate continues to fluctuate. The euro-renminbi exchange rate has been on a downward trend in the past nine months since it climbed to a high of 1:8.5756 in May last year. I thought that export companies would lament this, but through interviews, we found that compared with exchange rate fluctuations, companies believe that the continued economic downturn in Europe and the slow economic recovery are the biggest challenges that need to be addressed.
​Exchange rate fluctuations have little impact
“Judging from the current situation, the impact on export orders is small. The company’s orders exported to Europe have always been settled (payment) in US dollars or letters of credit. In addition, the company’s production plans have been prepared in advance. In 2015 Foreign trade orders for 2016 have been made very early, so they have not been affected by exchange rate fluctuations. However, if the euro continues to depreciate, it may have a certain impact on orders in the spring and summer of 2016, but the impact is not expected to be significant.” We are actively preparing. Ji Yi, chairman of the Changshu Tianyi International Trade Co., Ltd., said in an interview with reporters.
Changshu Tianyi International Trading Co., Ltd. has been exploring the European market for many years, mainly producing OEM cotton clothing, down jackets, and coats. In the interview, Ji Yi said: “This year, the company has completed approximately 12 million US dollars in product orders. Due to the long-term instability of the euro, whether it is the import of raw materials or the export of products, the company and the vast majority of European customers are settled in US dollars. . In addition, compared with other traditional markets, the market environment in Europe is relatively standardized, and there is generally no problem of payment arrears. Therefore, the current depreciation of the euro has no obvious impact on the company.”
Huang Ping, general manager of Sichuan Jindi Clothing Co., Ltd., also gave the same statement. The company is mainly engaged in the import and export of clothing in Europe, the United States and other regions. She said in an interview with reporters: “We have always used letters of credit to settle payment. The prerequisite for payment is to obtain shipping documents that comply with the provisions of the letter of credit. This effectively avoids the risk of prepayment. The payment method of letter of credit is to a large extent Resolve the conflicts between importers and exporters on payment and delivery issues. Therefore, the depreciation of the euro has not had a big impact on our company as a whole.”
Rao Zhiming, associate professor at the School of Economics and Finance at Huaqiao University, said that before importing or exporting goods, companies can sign a contract with the transaction party in advance to explain the fluctuations in exchange rates. At the same time, he also suggested that companies should start hedging risks in the foreign exchange market as soon as possible in response to exchange rate fluctuations. It is wiser to choose to use US dollars or letters of credit to settle payments.
The depreciation of the euro means that European buyers need to pay more euros to settle payments, which will lead to a reduction in their profits. To a certain extent, it will still cause a slight decrease in the purchase volume of importers. However, Huang Ping believes that this will only affect those foreign trade companies that make mid- to low-end clothing, and it is expected that the order volume they receive will drop by about 2-3%. ​
​Proactively look for market opportunities
Although the depreciation of the euro has an impact on my country’s export trade, the continued weakness of the European market and the slow recovery of the overall economy are the fundamental reasons that directly lead to the decline in orders from European importers. At the same time, the sluggish state of the European economy itself, high unemployment and other factors have led to a lack of market confidence in economic growth.
Recently, Ji Yi is actively preparing to participate in the 2015 China Textile and Apparel Trade Fair (Paris) Spring Exhibition and Paris International Clothing and Apparel Sourcing Exhibition (referred to as “Paris Spring Exhibition”) held in Paris, France from February 9th to 12th. Although the exchange rate fluctuates, he is still looking forward to the European market after having been engaged in European foreign trade business for many years. He said: “What is more serious than exchange rate fluctuations is the sluggish European economy. In this case, companies must proactively seek opportunities.” This is Ji Yi’s first show at the Paris Spring Show. He will bring cotton clothing , down jackets, coats and other relatively fashionable and high value-added products are participating in the exhibition, and hope to find suitable local agents through the exhibition.
Huang Ping, who has participated in many Paris spring exhibitions, also said that in order to maintain market share, companies still need to build brands. This time, Jindi Clothing Co., Ltd.’s independent brand “hellopocket” will be unveiled at the Paris Spring Show for the first time. The brand’s main products are goose down jackets characterized by light luxury, high-quality business, and business travel. All clothing materials of “hellopocket” follow low-carbon environmental protection and natural ecology. The autumn and winter products are mainly high-quality goose down and cashmere, and the spring and summer products are made of natural fiber fabrics such as cotton, linen and mulberry silk produced in Italy and South Korea. Goose down jackets are divided into 3 styles and 5 colors. Among them, 3 colors cater to the European market, and 2 colors are used for modern Chinese-style clothing. The products, from yarn to fabric, are all imported materials.
Huang Ping said: “European buyers have high requirements for the quality of clothing. Now that the exchange rate is fluctuating, they can adjust prices appropriately to stabilize customers. Products must be priced moderately to win the favor of buyers. Take the ‘hellopocket’ goose down jacket as an example. Product pricing is generally RMB 7,000-8,000, and the market pricing of our products is half that of similar products. At this exhibition, we will display our own products while doing traditional OEM and ODM. We hope to use the exhibition to find agents. Vigorously promote our own brands.”